Credit cards are everywhere. As of January 2017, there are 16,699,272 credit cards circulating in Australia. The combined total of credit card lending is north of $42 billion! (APRA statistics.) With credit cards being so convenient and useful – especially for online transactions – is it worth applying for one if you’re on the fence?
Credit cards are convenient
Credit cards have one over-arching feature, and that’s convenience. Almost every retailer takes credit cards, and those that offer contactless payments (Visa PayWave or MasterCard Tap and Go) increase by the day. Credit cards make it easier to pay for goods over the internet or while you’re overseas. You also gain benefits like price protection or purchase protection.
Credit cards can be a little too convenient
That all sounds well and good, but credit cards can become an impulse buyer’s worst nightmare. If you can’t resist the little chocolate at the checkout, then a credit card might not be the best idea. If you are notorious for not paying people back or buying anything and everything, a credit card might rack up thousands and thousands of dollars before you even realise it. It’s not all bad: if you budget right and pay off your credit card quickly, a credit card can be a great way to help your cash flow.
Remember, credit is a type of loan
Credit cards are a type of revolving loan – instead of a lump sum doled out once on which you pay back in instalments; a credit card is another form of borrowing. There is a cost to this convenience, and that’s high interest rates. Interest rates start at 7.99%p.a. and can be as high as 23.5%p.a. You also have to pay an annual fee, too. You can compare different credit cards with lower fees and lower rates, but all credit cards will cost you extra than buying with cash.
Falling into the credit card trap
Many people can fall into the “credit card” debt trap – especially young people. Younger people might just repay their minimum amount each month, which only attracts higher interest. If you have a $2,000 balance and a 19%p.a. interest rate it would take you 21 years and two months to pay it off and cost $4,144 in interest! Other traps include paying off credit card balances with OTHER credit cards, which can all spiral downwards into deeper debt and a bad credit history. If you are in debt and need help, you can call the ASIC National Helpline on 1800 007 007.
Use your own money and get credit card access
If you want the convenience of a credit card but not the high interest rates, a debit card might be right for you. A debit card uses your own money to make “credit” transactions at retailers and online shops. If you do not have the money linked to your debit account, you can’t buy it!